IPO Slowdown Dents VCs, M&A Deal Value

For the first time in 30 years, no venture-backed companies went public via a U.S. initial public offering last quarter, the WSJ reports, citing the National Venture Capital Association. This has been a boon to private investment firms. But it's not great news for venture capitalists -- not just because they miss out on lucrative IPOs, but because M&A deals have cooled, too. WSJ:

In the second quarter, the total disclosed value of venture-backed M&A in the U.S. came in just shy of $2.4 billion, down nearly 40% from $3.97 billion in last year's second quarter.

The languid economy is a big factor limiting deal activity. But if IPOs are down also, "all of a sudden, you don't have pressure on a buyer to buy a company before they go public," which can reduce the price a buyer is willing to pay, or scuttle deals altogether, says Jim Fulton, a partner with law firm Cooley Godward Kronish LP in Palo Alto, Calif. Cooley lawyers advised companies on eight IPOs in 2007, but have done only one so far this year. "We're clearly off the pace," Mr. Fulton says.

Meanwhile, who's winning? Firms like Industry Ventures that buy up positions in private companies second-hand from VC firms, other investors, or sometimes from startup founders themselves, the WSJ says. The average venture-backed company in the U.S. now takes 8.6 years to go public, up from less than 4.5 years in 1999, according to the Journal.